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"Cloth and using that money to buy government bonds..."

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Sorry, I didn`t get back earlier. I will try and explain this first as simply as possible and then get into technicals. First, very simply, in any field the more money one borrows the more risk there is. For instance, if your buddy asked you for $5 you wouldn`t even think twice. If they asked you for $5000, you would be very concerned. In finance, more risk, means charging a higher rate. Well, the government is going to run an unprecedented deficit. Where will they get the money. How does the government borrow. So, if the government is borrowing more money, they need to pay a higher rate. That`s why rates are going up. That`s the simplest way to understand it. Now, more technically speaking, there is a lot more going on. For instance, the Fed is currently creating money out of whole cloth and using that money to buy government bonds. As such, the Treasury is ultimately borrowing from the Fed. That keeps interest rates somewhat low. At the same time, bond traders and other investors are uncomfortable buying these bonds at their current rates. So, more and more, the Fed is the only one buying these bonds. Second, the government is at the beginning of a major move to borrow. Up until now, the government has mostly planned to borrow. Now, they are beginning to execute their borrowing. This involves "bond offerings". This is when the government actually goes into the bond market and borrows the money. Beyond this, most of the foreign investors in bonds, China, Brazil and Russia, have been largely frightened by the obscene amount of borowing. They have largely held off on buying new bonds. They are even selling a bit. So, what we have is a massive amount of new bonds being pushed into the market at the same time several major buyers of bonds are refusing to buy anymore. Furthermore, with the global recession no one has any money. So, who is going to lend the government money, or buy their bonds. So, it is reasonable to assume that the rate on these bonds will go up. On 6/18/09, .

"Wanted to make capital gains profits in bonds that time is past in this..."

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It is likely that interest rates will not continue to fall. Likely they will rise on the next Fed move - when ever that may be. The price of bonds, all bonds and not just gov. bonds, is an inverse relation to the rate. When rate go up, as they likely will, the price of bonds goes down - always. If you wanted to make capital gains profits in bonds that time is past in this cycle in my opinion - at least on owning bonds. Follow the logic: Let`s say you own a bond that pays 10% and you paid a $1000 for the bond. Now intrest rates go up to 11% and the price of that new bond is also a $1000. You want to sell your bond that pays $100 interest a year when I can buy a different bond that pays $110 interest every year. The only way your bond will be competitive is to sell it for less money. the stated interest does not change on a bond but the market price will with the current interest rate climate.

"If the government wants to sell bonds..."

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That, in turn, increases the bond`s yield (effective interest rate). Another way to look at it is this: If the government wants to sell bonds, how does it make them more attractive for investors. It can do so by either lowering price or raising the interest rate paid on the bond. That is sometimes an easier way to conceptualize what happens when the government sells bonds. Bill .

"The federal reserve is no more `federal` than federal express (fedex..."

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Quick answer: No. The Federal Reserve is prohibited from purchasing Treasury Bonds "directly" from the U.S. government.
Instead, they send the bonds to a broker, then the Federal Reserve can purchase them from the broker.
Also, the Federal Reserve is no more `federal` than Federal Express (FedEx), they are a private bank and NOT a part of federal government.

"Rates and selling of bonds by the government then the economy tightened monetary policy..."

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If there is an increase in the interest rates and selling of bonds by the government then the economy tightened monetary policy is in play. the government is trying to contract the investment climate. Government sells bonds through central banks to the commercial banks and if commercial banks will have less money they will lend less money and there will be less business. James Joseph.

"If federal reserve buys all the available government bonds..."

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If Federal Reserve buys all the available Government Bonds, then the two most important factors to get affected are money supply and interest rates which will produce a big impact on the overall economy. It will improve the Credit conditions which means there will be more money supply in the market. It will also be lowering the cost of borrowing which means reduction in interest rates.
Jack Corner.

"When the government is selling securities (t bonds..."

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When the government is selling securities (t bonds), it is trying to decrease the money supply. Decreasing the money supply in turn increases the demand which raises interest rates. This is usually done when the economy is in expansion and the fed is trying to put downward pressure on inflation.

"When federal reserve engages in open-market operation and purchase of government bonds..."

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When federal reserve engages in open-market operation and purchase of government bonds, any of the following can happen: market imbalance, excess speculative share scenario, etc. it is dangerous for the federal reserve to engages in open-market operations and purchase of government bonds
harry corner.

"But i think when the government buys bonds..."

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I might be wrong here, but I think when the government buys bonds, they are trying to increase the money supply. They are injecting money into the circular flow when they buy bonds, not taking money out. When they sell bonds that is when they are decreasing the money supply.

"When the fed purchases government issued bonds..."

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When the Fed purchases government issued bonds, these bonds are counted as reserves. These new reserves can be borrowed against which has the net effect of increasing the overall money supply in the economy. When the Fed sells bonds, the opposite is true and the net effect is a decrease in the money supply of the economy.

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Has the federal government been buying or selling more government bonds?